KEY FIGURES. Net Operating Profit (in million EUR) Turnover (in million EUR) KEY FIGURES, CONSOLIDATED AND AUDITED ACCORDING TO IFRS STANDARDS

Transcription

1 A N N U A L R E P O R T

2 KEY FIGURES Turnover (in million EUR) (1) 02 (1) Net Operating Profit (in million EUR) (1) 02 (1) EVS STOCK PRICE EVOLUTION (in million EUR) (1) 2001 and 2002 figures are disclosed according to Belgian GAAP. (2) EBITA means Earnings Before Interest Taxes and Amortization and corresponds to the operating result before amortization of goodwill. The EBITA margin is the EBITA divided by the operating income. (3) The net operating profit is the net profit (group share) excluding goodwill amortization and extraordinary income taking tax items into account. (4) The net profit margin is the net profit from operations divided by the operating income. (5) Calculated on the basis of the number of stock options except own shares and excluding warrants. (6) Excluding net cash means that the company s market capitalisation (stock price) has been reduced by the cash of the company less its short and long-term debts, net cash being 20 million EUR. KEY FIGURES, CONSOLIDATED AND AUDITED ACCORDING TO IFRS STANDARDS (in million EUR) 2002 (1) %04/03 Operating income % Operating result (EBITA) (2) % Net profit % Net profit from operations (3) % Net margin (4) 13% 19% 33% n.c. Return on equity at the beginning of the year 21% 33% 100% n.c. Per share in EUR Number of shares on 31 December excluding own shares Net profit from operations per share (5) % Dividend/Capital reimbursement per share % Pay-out ratio 28% 142% 82% Average stock price (before split) Highest stock price (before split) Lowest stock price (before split) Stock price at closing date (before split) Average volume exchanged daily (before split) Capital as of 31/12, before dividend allocation Market capitalisation as of 31/ Price/Earning ratio (excluding net cash) (6)

3 1 TABLE OF CONTENTS INFORMATION TO SHAREHOLDERS Letter to Shareholders 2 Corporate Governance 4 Historical Background 5 EVS in a nutshell Key Facts 7 Management Report Shareholding as of 31 December Profit Allocation Policy 17 Stock Market Report 18 PRODUCTS AND MARKETS 20 Integrated TV production systems, XT[2] technology 22 Broadcast solutions 26 Solutions for Digital Cinema 28 EVS WORLDWIDE 30 GENERAL INFORMATION 34 CORPORATE GOVERNANCE 37 IFRS CONSOLIDATED FINANCIAL STATEMENTS 41 IFRS consolidated income statement 41 IFRS consolidated balance sheet 42 IFRS consolidated cash flow statement 44 IFRS consolidated statement of changes in net equity 46 Reconciliation of the 2004 accounts between Belgian GAAP and IFRS 47 BELGIAN GAAP CONSOLIDATED FINANCIAL STATEMENTS 48 Auditor s Report 48 Belgian GAAP consolidated income statement 49 Belgian GAAP consolidated balance sheet 50 Belgian GAAP appendices and comments 52 PARENT COMPANY FINANCIAL STATEMENTS 63 Statutory Management Report 64 Belgian GAAP statutory Income Statement 65 Belgian GAAP statutory Balance Sheet 66 Appendix 68 GLOSSARY 69

4 2 LETTER TO SHAREHOLDERS Innovation serving millions of TV viewers Dear Shareholders, The year of our 10 th anniversary was marked by a considerable increase in our activities. We delivered more than 500 new digital systems to the most prestigious broadcasters around the world, translating into sales approaching a total of 50 million EUR and a net current result at a record level of 16 million EUR. We not only saw a rise in our stock market price, but we also experienced, in particular, increased liquidity and the arrival of new shareholders, aware of our particular positioning in a niche market characterised by strong growth. Our innovation strategy of serving the customer and concentrating on niche markets seems to be bearing fruit. Firstly, let us take a look at innovation: listening to customers, identifying their operating workflows, anticipating their needs and suggesting creative and reliable solutions enables them to serve millions of TV viewers. The product is at the heart of our business. Intense interaction between customers and our development teams provides the driving force for our growth. Secondly, serving our customers: today, over operators all over the world use our equipment and applications on a daily basis, often in tough conditions or in environments subject to intense pressure, as it is the case in the majority of live transmissions of major events aimed at hundreds of millions of TV viewers. Our teams train, advise and assist our customers, including operators, engineers, directors and producers. One of our priorities is to find a rapid solution to the customer s challenge. Finally, our positioning in niche markets: the world of television production is complex and involves the most advanced digital technologies. We concentrate on the products and applications in which we have the greatest competence and strive to create new niches of activity. As announced at the beginning of 2004, we have reorganised the group s portfolio of operations. In September 2004, we sold our French subsidiary, NETIA, to the company s management, staff and financial partners. Despite a good product, the radio network digital automation market continues to be tough and very competitive. NETIA also made a negative contribution to the consolidated results in 2002, 2003 and EVS is now able to focus on digital video technologies for television networks thanks to its extensive experience in both digital audio and video. In December, we revitalised our digital cinema activities by affecting a spin-out and attracted financial partners, with whom we intend to install a digital cinema network as rapidly as possible with a critical size sufficient to benefit essential economies of scale. Finally, we increased the company s payout, distributing 11 million EUR to shareholders while maintaining self-financing of organic growth.

5 3 Digital conversion is in full development and the advent of High Definition Television (HDTV) will speed up the digitisation of the entire industry, from production to supply to TV viewers. In light of this, we have strengthened our development teams and our sales force by taking on more than 20 new staff. Our strong growth encourages us to be even bolder and the company is becoming increasingly professionalized. The last two years have enabled us to position ourselves as one of the leaders in the cycle of replacing production unit trucks with greater penetration of XT and high definition applications. We aim to increase our market share within the broadcast industry, mainly at the expense of the tape (cassette). We are addressing the processes where speed of execution is a critical factor for success as well as applications derived from live production, such as the talk-shows that follow sports events. Our Speed To Air strategy is now more relevant than ever. The main issues for 2005 lie in the release of new generations of products, both for television and digital cinema, and in our endeavours to constantly improve our direct service to the television stations. We are continuing to structure the group so as to pursue growth, with the pace of this growth depending particularly on how quickly the HDTV format is adopted in Europe. The XDC initiative is meeting with growing success in the cinema industry and we feel that XDC will become a reference for that sector in the future. Whilst remaining dependent on the general economic climate and the US dollar exchange rate, EVS is positioned to continue its profitable growth over the coming years. Laurent MINGUET, Pierre L HOEST, Michel COUNSON, Managing Director Managing Director Chairman XDC S.A. EVS Broadcast Equipment S.A. EVS Broadcast Equipment S.A.

6 4 CORPORATE GOVERNANCE Board Members as of December 31, 2004 Michel COUNSON, Chairman & Executive Director Laurent MINGUET, Managing Director & CEO Pierre L HOEST, Managing Director & CEO S.A. CYTINDUS, represented by Michel DELLOYE Francis BODSON, Independent Director Jean DUMBRUCH, Executive Director S.P.R.L. LYS CONSEIL, represented by Laurent LEVAUX, Independent Director Jacques GALLOY, Executive Director & CFO Pierre RION, Independent Director Audit Committee S.P.R.L. LYS CONSEIL, represented par Laurent LEVAUX, Chairman S.A. CYTINDUS, represented by Michel DELLOYE Jacques GALLOY, Executive Director & CFO Compensation Committee Francis BODSON, Chairman S.P.R.L. LYS CONSEIL, represented by Laurent LEVAUX, Independent Director Pierre L HOEST, Managing Director & CEO Group Executive Committee Michel COUNSON, EVS Broadcast Equipment S.A. Chairman & Executive Director Laurent MINGUET, XDC S.A. Managing Director & CEO Pierre L HOEST, EVS Broadcast Equipment S.A. Managing Director & CEO Jacques GALLOY, EVS group Executive Director & CFO Statutory Auditor Philippe PIRE, Ernst & Young S.C.C. (B160) Boulevard d Avroy, 38 BE-4000 Liège Belgium EVS Broadcast Equipment S.A. Liege Science Park Rue du Bois Saint-Jean, 16 BE-4102 Ougrée Belgium Tel. : +32 (4) Fax : +32 (4) corpcom@evs.tv Fore more details on EVS Corporate Governance, please refer to page 37.

7 5 HISTORICAL BACKGROUND EVS Broadcast Equipment S.A. was founded in February 1994 by Laurent MINGUET, Pierre L HOEST and Michel COUNSON. The founders of EVS aimed to develop equipment for the digital recording of pictures on hard disks (disk recorders) for professionals within the television industry: the Broadcasters. In September 1995, EVS developed a super digital hard disk recorder in partnership with Panasonic, who released the first Super Motion camera (3 times more pictures than a classical camera) for the Atlanta Olympic Games. This enhanced the international reputation of EVS. In 1997, EVS opened two subsidiaries in the United States and Hong Kong to market its equipment on the American and Asian continents. In July 1998, EVS opened a subsidiary in France in order to follow up the important developments of the World Cup market, in which the group took part. In October 1998, EVS listed on the first market of the Brussels Stock Exchange and collected 7.4 million EUR. This amount has been used to guarantee the company s expansion, increase its reputation and attract top quality employees. In 1999, EVS set up a two further subsidiaries in Italy and the United Kingdom. In 2000, in order to vitalise its growth, EVS opted for and invested in video broadcasting systems and digital cinema. EVS was involved in Euro2000, the 2000 World Expo in Hanover and the Olympic Games in Sydney, for which NHK, the dominant Japanese television station, asked the company to develop a high definition recorder prototype. In 2002, EVS deployed the XT platform at the 2002 FIFA World Cup for the first time, networking more than 80 recorders. EVS teams also assisted customers at the Winter Olympics in Salt Lake City. The Latin American markets were followed up by the New York office, while a new office was opened in Los Angeles, particularly for the needs of digital cinema. In spring 2003, EVS opened new premises with a total floor area of square metres: a superb blend of glass, wood and concrete erected in a green setting to reflect the company s growth. The futuristic building incorporates the latest digital technologies and contains new training and multi-media rooms as well as a digital cinema screening room signalled the real take-off of High Definition Television in the USA, South Korea, Australia and Japan. In America, ESPN set up the event by producing 100 sports retransmissions in high definition after having three new production OB vans built, each incorporating 6 EVS XT HD units marked the 10 th anniversary of EVS by setting a new record for sales. EVS demonstrated the interoperability of its new products with Sony, Panasonic, Thomson and Leitch at the major NAB trade fair in Las Vegas. In April, RTL broadcast the first news report made using the new digital tools from the CleanEdit suite. In December 2004, the XDC digital cinema initiative was vitalised by the spin-out operation and the raising of 9 million EUR. XDC positioned itself as the biggest deployment initiative for digital cinema in Europe. In January 2005, our USA teams assisted those at FOX with the installation of an architecture comprising 20 networked XT HD servers for the production and retransmission in high definition of the Super Bowl by FOX to more than 170 million TV viewers.

8 6 EVS IN A NUTSHELL SALES (in million EUR) (TV systems staff: 118) TELEVISION SYSTEMS Integrated TV production systems plus TV production and digital broadcasting systems EVS is the leader in live mobile digital video production systems. Its products have become a global standard. The XT production platform enables the creation, editing and exchange of video files, giving rise to the acknowledged development of operating methods intv production. Over operators of all nationalities use the group s applications on a daily basis. EVS has developed extensive know-how in the processing of compressed video signals. This is illustrated by the setting up of the first digital TV newsroom in Belgium and Near Video On Demand (NVOD) systems for pay-per-view packages. EVS intends to continue its role as the innovator of the migration from analogue to digital technology for television processes. Today, 75% of the image processing methods in television networks are based on tape. In mobile production at the global level, only 20% of cameras are recorded on a hard disk. In the new high definition trucks, the level of penetration is approaching 50%. The car replacement cycle is accelerating as a result of the appearance of the HDTV format. The same is true in the television stations, with the cassette gradually being replaced by new digital solutions. EVS is focusing, in particular, on applications, for which the speed of production is a key factor for success. This is the Speed To Air strategy. EVS is also faced with other major exciting challenges! SALES (in million EUR) DIGITAL CINEMA SOLUTIONS (Digital cinema staff: 25) For some years now, EVS has been convinced that the cinema will be the last massmedium to be digitalised. It is a matter of providing a digital solution to replace the 35mm reels used to project movies in the cinemas. The integrated XDC solution meets the needs of the cinema operators, as well as the film distributors and producers. On the one hand, and for a modest monthly rental, XDC provides operators with a complete system (secure server, projector, antenna, satellite, etc.). On the other hand, XDC enables distributors to encode, transport and ensure the quality control of digitalised copies at a cost 25% below the current cost for a 35mm copy. On a potential market of cinemas worldwide, 300 are presently projecting digital feature films, with a hundred of these using XDC servers. More than digital screenings have been carried out so far for around 100 different films. The potential is around the level of the calculated risk taken by XDC. Digital conversion is underway.

9 KEY FACTS EVS UNITED STATES February 2004 CBS Sports uses EVS SportNet technology as the centre of production for Super Bowl XXXVIII, partly in high definition. EVS UNITED STATES February 2004 Delivery of 6 XT-HD SpotBoxes to ESPN HD for its new high definition production studios serving, in particular, the popular SportsCenter programme. EVS BRUSSELS April 2004 RTL broadcasts the first news report made using the new digital tools of the CleanEdit suite. EVS JAPAN April 2004 The leading Japanese public TV network, NHK, purchases 5 HD LSM XTs to equip two of its high definition production OB vans. XDC LUXEMBURG May 2004 XDC delivers its 100 th digital cinema server to the European group UTOPIA, an example for independent cinemas and those showing both arthouse and commercial movies. EVS PORTUGAL June 2004 In cooperation with Alfacam, EVS teams take part in the first major HDTV production in Europe: Euro2004 with over 40 networked XT-HD units. EVS ATHENS August EVS hard disk recorders used by 30 television networks in Greece for the production of the Olympic Games. Given the time difference, 40% of the images seen by American TV viewers came live from the XT platform. EVS UNITED STATES September 2004 FOX launches the most popular new sporting season in the USA, the NFL, with the production of 6 matches per weekend in HDTV thanks to 6 new production trucks equipped with 5 to 7 XT-HDs from EVS and the X-File technology, which enables the sending back of several clips to the television network for rapid and efficient operation. EVS UNITED KINGDOM September 2004 Deployment within 3 months of an interactive solution combining XT and CleanEdit for BSkyB, enabling the transmission of 50 minute summaries of 8 football matches in parallel only 2 hours after the final whistle. EVS PARIS October 2004 Sale of the French subsidiary NETIA, operating in the area of radio network automation, generating a net value added of around 1.9 million EUR. EVS AUSTRALIA October 2004 EVS delivers 5 XT SD servers to Southern Cross Broadcast, the Australian leader in the terrestrial hertzian transmission of video signals, for regional contributions across the vast country. XDC LIÈGE December 2004 Vitalisation and spin-out of EVS digital cinema activities in a 60% subsidiary, raising a sum of 9 million EUR. EVS LIÈGE December 2004 The EVS family celebrates the company s 10 th anniversary at a memorable evening also devoted to high definition, further enhanced by the presence of numerous sports personalities, ministers and customers.

10 8 MANAGEMENT REPORT 2004 SALES (in million EUR) TOTAL TOTAL PRO-FORMA EXCLUDING NETIA 93%-TV SYSTEMS 5% - RADIO MANAGEMENT SYSTEMS 2% - DIGITAL CINEMA (XDC) 45%- EUROPE, MIDDLE EAST, AFRICA 40%-AMERICAS 15%-ASIA-PACIFIC Consolidated figures (1), audited, Belgian GAAP (in million EUR) %04/03 Operating income % Turnover % R&D expenditures % Operating result (EBITA) (2) % EBITA margin % 21% 35% 49% n.c. Financial result (including goodwill amortization) (3) n.c. Profit from operations before taxes % Extraordinary items n.c. Profit before taxes % Income taxes % Net profit Belgian GAAP % Net profit (group share) % Net profit from operations (4) - Belgian GAAP % Net profit margin (5) 13% 22% 33% n.c. IFRS key figures (in million EUR) %04/03 Turnover % Operating result (EBITA) % Net result IFRS standards (group share) % Net profit from operations IFRS standards % We have experienced a fantastic year with the confirmation of the launch of High Definition Television (HDTV) in the United States, and also thanks to the success enjoyed by our various products in Europe and the Asia-Pacific region. HD sport is proving to be a content favoured by TV viewers for adopting the new HDTV format. Our teams also achieved three excellent performances at the Olympic Games, Euro2004 and the Super Bowl, where they assisted our customers in setting a new standard for television in the form of HDTV. Our Speed to Air strategy had led to a global solution for live sports production, from external production to the studio environment in the television networks themselves. Production is becoming more flexible, faster and more efficient, making it possible to quickly provide better live images to TV viewers. Products like HD LSM XT are the workhorses of many sports productions, while the SD/HD SpotBox XT is a flexible and complementary acquisition for numerous studio mixers. The television industry is progressively migrating from analogue to digital technology and the new markets to be explored and developed are numerous. Our recruitment of additional personnel in the areas of R&D, sales and support enables us to continue our growth and maintain our leading position in our niche markets. Per share data (in EUR) %04/03 Number of shares (as of 31 December) Number of shares excluding own shares Net profit from operations diluted per share (6) - Belgian GAAP % Net profit diluted per share (6) - IFRS standards % Net profit from operations diluted per share (6) - IFRS standards % (1) Consolidation scope: EVS S.A., EVS France, EVS Hong Kong, EVS USA, EVS Italy, EVS UK, NETIA (6 months), XDC (3 months). (2) EBITA means Earnings Before Interest Taxes and Amortization and corresponds to the operating result before amortization of the goodwill. The EBITA margin is the EBITA divided by the operating income. (3) Goodwill amortization for VSE and NETIA was entirely amortized by 31/12/2003. Exceptional amortization amounted 0.9 million EUR in (4) The net profit from operations is the net profit (group share) excluding goodwill amortization and extraordinary income taking tax items into account. (5) The net profit margin is the net profit from operations divided by the operating income. (6) Calculated on basis on the number of shares excluding own shares and warrants.

11 9 STRATEGIC PLAN EVS reorganised its activity portfolio during the business year 2004, refocusing its attention on television products. Consequently, the radio automation system subsidiary NETIA was sold to the company s local management and financial partners last September. In contrast, digital cinema operations have been strengthened through a new subsidiary, XDC SA, in which EVS holds a majority stake of % following a 9 million EUR refinancing operation with financial partners. Finally, EVS paid out approximately 4 EUR per share or a total of 11 million EUR to its shareholders during the second quarter of SALES The group s sales reached a record level of 49.9 million EUR over the business year, representing a 28% increase compared with 2003, or +34% at the constant exchange rate. Outside of NETIA, pro-forma EVS sales (television and cinema) rose by 37% over the same period, i.e. by +44% at the constant exchange rate. Sales (in million EUR) %04/03 Total published % Total pro-forma excluding NETIA (1) % (1) NETIA was consolidated up to 30 June 2004 and for the needs of this report the pro-forma excludes NETIA for 12 months. The sales of the EVS group break down into the following product segments, taking account of the fact that the sales of NETIA were consolidated from 1 July 2004: According to products %mix %04/03 (in million EUR) 2004 TV systems (1) 93 % + 34 % Radio management systems (1) 5 % n.a. (1) Digital cinema (XDC) % + 80 % TOTAL % + 28 % (1) NETIA was consolidated up to 30 June 2004 and the sales of NETIA are divided in each case between the Radio management systems (mainly) and TV solutions (incidentally). The sales of the EVS group break down into the following geographical segments, taking account of the fact that the sales of NETIA were realised mainly in Europe during the first quarter. According to regions %mix %04/03 (in million EUR) 2004 Europe, Middle East, Africa % - 1 % (excluding NETIA) (16.3) (18.0) (19.6) (+ 9 %) Americas % + 85 % (at the constant exchange rate) (22.3) (+ 110 %) Asia-Pacific 8.4 (1) % + 31 % TOTAL % + 28 % (1) Including 3,3 million EUR in non-recurring rentals for the 2002 Football World Cup. TELEVISION SYSTEMS Expressed in EUR, sales of TV products more than doubled in the USA, while increasing by 31% in the Asia-Pacific region and 9% in Europe. The XT platform is becoming a standard for the majority of live productions, with EVS products benefiting from new operational architectures which do away with magnetic tape. The platform has, for example, been integrated into the new state-of-the-art ESPN HD digital centre in the USA, in particular for the new-look SportCenter show, where the new HD graphics are shown from networked HD SpotBox XT servers and controlled by the production mixer. With regard to the production of information, EVS has announced major interoperability initiatives with Sony and Panasonic in relation to the CleanEdit solution in order to replace the traditional cassette with new digital supports. Sales of EVS television solutions to studios currently account for just 20% of total TV sales. EVS is, however, also gaining market share in the studios of Japanese regional and national television stations. EVS will start delivering the new generation platform during the second quarter. It will provide customers with much more flexibility, bandwidth, interoperability, power and efficiency. One single XT server will be able to record more cameras, particularly in high definition. A number of major television networks (existing and new customers) have already confirmed that they are seriously interested in this new platform.

12 10 DISTRIBUTION OF PERSONNEL BY DEPARTMENT (as of 31 December 2004) 27- GENERAL SERVICES 54- RESEARCH & DEVELOPMENT 36- SALES & MARKETING 26- PRODUCTION & OPERATIONS DIGITAL CINEMA XDC XDC ( exchange Digital Cinema ) offers a complete solution for the logistics and transmission of secure digital movies. Boosted by our technological experience, our expertise in the field of digital servers and our leading position in the emerging digital cinema market, we are committed to providing distributors and operators with the best digital solution in terms of logistics and storage. The launch of XDC has made it possible to bring together a strongly motivated team dedicated exclusively to digital cinema in a single building. Thanks to the financial leverage of our partners, we are well positioned to develop the first large digital cinema network in Europe. We are also gaining the confidence of major American studios which, furthermore, entrust us with the digital distribution of their new movies. XDC will also launch the 3 rd generation of servers during the 2 nd quarter. This new server has been redesigned to better meet the specific needs of the XDC business model. DATE OF FIRST APPLICATION OF IFRS As in June and September, the EVS group has published its 2004 pro-forma consolidated accounts in accordance with the IFRS standards. The first time application date (FTAD) of the IFRS standards is 1 January The 2003 pro-forma IFRS accounts are included in the tables for the purpose of comparison. Like the majority of comparable companies, the profit and loss account items are presented according to their nature. The cost of sales does not solely include the cost of the equipment sold; it also takes account of all direct and indirect production costs, including inventory write-offs. In view of the current transition towards the IFRS standards and the fact that the first complete IFRS report will be that for the business year 2005, this annual report sets out the accounts in accordance with both the Belgian and IFRS accounting standards. RESEARCH & DEVELOPMENT The group maintained its expenditure on R&D at a level of 6.1 million EUR, representing 12% of sales, compared with 15% in In accordance with the group s accounting rules (Belgian and IFRS), this expenditure is not capitalised but, rather, expensed over the financial year. The company presently has more than 55 top engineers working on of the conversion of both television and cinema to all-digital technology: over 40 for TV systems and 14 on digital cinema. The future of the audiovisual sector will be mainly influenced by the changes in digital technologies, which offer viewers greater choice, improved quality and interactivity. Customer satisfaction is at the heart of EVS concerns. The group s strong vertical integration between sales/support activities at a local level and centralised R&D enables rapid adaptation of products. The priority of EVS in terms of R&D is to continue the development of a modular tape-less production platform with a broad bandwidth, offering directors even more flexibility and quality for transmitting content to viewers, i.e. Speed-To-Air. R&D endeavours have been focused on the 4 th generation XT platform and editing tools. The new staff members are cooperating on the development of new applications for production trucks as well as for studios and work-flows inside the television stations. In conclusion, EVS is migrating from a standalone hard disk recorder (LSM) to an integrated production platform. Digital cinema activity is continuing, among other things, the development of a new compact and substantially more powerful server. It will be even better adapted to the specific needs of the XDC initiative. The engineers are also developing an encoding platform and a networked architecture to facilitate exchanges of secure images.

13 11 STAFFING After two years of a weak economic climate and through capitalising on the group s growth and the deduction made from the sale of NETIA, EVS appointed 17 personnel during the year under review to primarily intensify the development of new products as well as strengthen the sales teams and technical support. The total payroll cost amounted to 10.1 million EUR (10.5 million EUR according to IFRS standards), representing approximately 50% of the group s fixed cost base. The group employed 143 people as per 31 December Breakdown of personnel according to subsidiary and department in full-time equivalents: Breakdown General R&D Sales & Production & Total (as of 31 December 04) Services Marketing Operations EVS Broadcast (TV) XDC Digital Cinema TOTAL RESULTS AND COST CONTROL For 2004, the gross margin reached a level of 79% according to IFRS standards, i.e. 9% higher than in the previous year, mainly due to the deconsolidation of NETIA for the final 6 months. Given the hybrid nature of the fixed and variable costs relating to the gross margin, the greater the sales increase, the greater the gross margin percentage itself rises and vice versa. The group s stocks were valued at 4.3 EUR million as per 31 December 2004 compared with a figure of 4.7 EUR million on 1 January 2004 (4.9 million and 5.4 million EUR respectively according to IFRS standards). This reduction is partly explained by small lot production and additional write-offs on technologically obsolete stock items amounting to around 0.6 million EUR. Sales and administrative costs rose to 9.3 million EUR, up 0.3 million EUR on the previous year (9.4 million EUR in line with 2003 according to IFRS standards). The reduction in the cost base inherent in the sale of NETIA was partly offset by the costs of the additional staff taken on to strengthen television activities. The group suffered from the negative effects of the weakening US dollar. Only the sales realised in the USA are entered in US dollars, i.e. 40% of the group s total. Half of this amount was offset by expenditure in US dollars, resulting in a net balance of approximately US dollars 10 million. The group s hedging policy is to sell forward according to market opportunities, with roughly half of this net balance in US dollars. Thus, at the end of December 2004, the group sold US dollars 5 million against the Euro at an average rate of 1.23 USD/EUR with an average maturity date of July The operating result (EBITA 2004) amounted to 24.6 million EUR, representing an EBITA margin of 49% of sales compared with 35% in According to IFRS standards, the operating result was 24.2 million EUR, i.e. an EBITA margin of 48% of sales. The contribution of NETIA to the 2004 EBITA was slightly negative (-0.2 million EUR), while the group invested around 3 million EUR in the development of digital cinema. The current net result amounts to 16.8 million EUR for 2004, a growth of 84% compared with According to IFRS standards, the current net result amounted to 16.7 million EUR, an increase of 120% compared with the previous year. The reconciliation between these two figures is detailed on page 47. The net result (group share) totalled 21.9 million EUR (21.5 million EUR according to IFRS standards) and includes the net capital gain realised on the disposal of NETIA (1.9 million EUR) as well as the 3 million EUR dilution profit associated with the XDC spin-out.

14 12 CASH-FLOW, OWN SHARES AND EMPLOYEE PROFIT-SHARING Net operational cash-flow rose to 18.7 million EUR over the period under review, excluding the receipt of 2.4 million EUR from the sale of NETIA, the raising of 9 million EUR of funds from XDC (a third of which was released on 31 December 2004) and the distribution of 4 EUR per share (11 million EUR) to shareholders in the second quarter of 2004 (in the form of repayment of capital and ordinary dividend). The EVS group had a gross cash flow of 24.4 million EUR at the end of the year and own shares. These are recorded in the net equity as prescribed by the IFRS standards. Long-term loans vis-à-vis credit institutions amounted to 3.9 million EUR. The deconsolidation of NETIA simplifies the group s balance sheet structure by reducing commercial letters of credit as well as financial debts. During the year under review, warrants relating to the capital of EVS Broadcast Equipment S.A. were exercised at an average exercise price of 19.2 EUR per share warrants allocated to employees of NETIA in 1999 and 2000 with an exercise price of 14 EUR and which could only be exercised from the end of 2005 were the object of a repurchase indemnity of 4 EUR per warrant under agreements leading to the sale of the subsidiary in September On 28 October, warrants were distributed in favour of certain staff members of EVS Broadcast Equipment S.A. on the basis of an exercise price of 61.2 EUR per share with an exercise period between March 2008 and April There are currently warrants allocated to staff at an average exercise price of 35.6 EUR and average maturity date of 14 March This has a diluting effect of 1.5% on capital and is fully covered by the own shares held by the company and acquired at an average price of 35.9 EUR. During the year under review and as dictated by market opportunities, the group acquired stocks on the stock exchange and disposed of , with of these to cover the warrants exercised during the year under review. At the time of the XDC spin-out operation, warrants representing 1.86% of the capital of XDC were distributed to staff at an exercise price equal to the price paid by the financial investors and with an exercise period between March 2008 and April On the occasion of the company s 10 th anniversary, the Board of Directors decided on 16 December 2004 to grant its employees a special reward through the profit-sharing scheme provided for under the law of 22 May The Extraordinary General Meeting of 14 February 2005 approved the distribution of available reserves up to an amount of approximately 0.4 million EUR. DISPUTES As per 31 December 2004, 0.2 million EUR of provisions were available to reasonably cover various commercial and social disputes before the courts. INVESTMENTS EVS business does not require major investments in equipment. The total net value of equipment, furniture and vehicles was 1.3 million EUR as per 31 December 2004 (1.4 million EUR according to IFRS standards). The group s policy is to have its own premises and finance these via long-term loans. As per 31 December 2004, the net value of real estate was 6.6 million EUR for the buildings located in Liège (5.3 million EUR according to IFRS standards). The buildings are financed by way of mortgage loans, with the majority benefiting from regional or European subsidies. Investments in tangible fixed assets amounted to 2.4 million EUR in 2001, 3.0 in 2002, 1.7 in 2003 and 1.3 in 2004, mainly through the construction of new buildings. There are no new buildings planned for 2005, with the result that scheduled investment will be lower than 0.5 million EUR.

15 13 CAPITAL, NETIA, SUBSIDIARIES On 15 March 2004, the parent company s capital was increased by 0.5 million EUR as the result of the exercising of warrants. In May 2004, EVS paid out approximately half the share capital to shareholders, i.e. 8.1 million EUR, bringing it down to 8.3 million EUR. In September 2004, we sold our French subsidiary NETIA to the company s management, staff and financial partners. This sale generated a capital gain of 2.0 million EUR. This result takes into account the waiving of a debt of EUR and compensation of EUR for the warrants allocated to NETIA employees. These warrants were the object of a repurchase indemnity of 4 EUR each under the agreements leading to the sale of the subsidiary. Finally, the balance of the loan by EVS Broadcast Equipment S.A. to NETIA (0.75 million EUR) was transformed into an equity redeemable bond yielding interest of 5% per annum up to 2009, which partially explains the increase in long-term debts. EVS had maintained a two-fold legal structure in Hong Kong: a branch and a subsidiary. Given that the activities of the branch of EVS Broadcast Equipment S.A. in Hong Kong were transferred to the subsidiary in 2003 and the activity of the branch was quasi zero during the first 8 months of 2004, the Board of Directors logically decided to close down this branch on 31 August PROSPECTS FOR 2005 Ten years after its creation, EVS has built up a strong niche position in the TV production market, both live and via production Outside Broadcast (OB) Vans. During this decade, the market has widely adopted EVS technology to the extent that the majority of production trucks associated with sports transmissions and the major television networks use at least one item of EVS equipment. With the substitution of infrastructures strongly based on the magnetic cassette, the market offered by HDTV represents a new opportunity in the history of EVS by virtue of enabling greater penetration of the servers into production methods. Customers appreciate the added value of the integrated platform and its standardised modules, i.e. the XT platform. This creates new possibilities for EVS in the fixed studio market, where this equipment supplements external production flows. Ten percent of American homes are already equipped with HDTV screens. Half of these who have subscribed to a service with Premium HDTV content really benefit from HDTV quality, though the HDTV content offered remains very limited. The specialists in the industry expect this to increase with demand, mainly based on major events, as was recently the case with the Super Bowl on Fox. The present situation in Japan is similar to that which prevailed in the US 18 months ago when the television networks started offering more HDTV content to their viewers. Major European satellite TV operators have announced their intention to launch HDTV networks at the end of 2005, while external production of the next World Cup in 2006 will be carried out in high definition. Depending on the speed of deployment of HDTV in Europe, the group s performance in 2005 will also vary according to the introduction of the new generation platform onto the market during the second quarter of 2005.

16 14 The current order book as per 1 January 2005 amounted to 4.2 million EUR and orders worth 5.0 million EUR were received between 1 January and the date of statement of annual results on 24 February Orders invoiceable for 2005 on that date thus increased to 9.2 million EUR compared with 8.4 million EUR on the same date in the previous year (excluding NETIA). Although XDC represents only a small part, more than 120 European cinemas in 5 different countries had formally expressed their intention by that date to join the XDC digital network. Taking account of the medium and long-term demands of EVS customers with regard to product development, the EVS Board of Directors is confident in the company s long-term growth even though visible proof in terms of concrete orders remains relatively limited as usual because of the short delivery times and purchasing cycles peculiar to the TV industry. It will also depend on the general economic climate, geopolitical risks and the rate of the US dollar. EVS is well positioned in its key markets to continue its organic growth. RECONCILIATION OF THE RESULT WITH IFRS The date of first application of the IFRS standards for EVS is 1 January The EVS group is anticipating the obligation of converting its consolidated accounts in accordance with the IFRS/IAS standards by publishing the 2004 reconciliation of the current net result in million EUR as follows: Reconciliation of the net current result: Belgian GAAP Repayable loans from the Walloon Region (taxable) Capitalisation of direct and indirect production costs in inventories Adjustment of currency exchange differences Fixed assets Depreciation method Deferred taxes Miscellaneous IFRS RECONCILIATION OF BALANCE SHEET AND NET EQUITY WITH IFRS: Based on the same principles, that is the reclassification of own shares into the net equity and the compensation of tangible fixed assets through relevant capital subsidies, the consolidated net equity according to IFRS (without third-party interests) amounts to 34.5 million EUR compared with 38.8 million EUR according to the Belgian GAAP. The group s balance sheet total according to Belgian accounting standards is 53.1 million EUR and 49.8 million EUR applying the IFRS standards. These items are detailed in the annexes to the consolidated annual accounts. CONFLICT OF INTEREST PROCEDURES During the year under review, there was no reason to apply the specific procedure provided for under Article 523 of Company Law. The total amount of remuneration and emoluments accorded to members of the Board of Directors by EVS in 2004 amounted to EUR compared with EUR in MISCELLANEOUS During the past business year, the accountants of the parent company, ERNST & YOUNG, Reviseurs d Entreprises S.C.C. (B160), represented by Philippe PIRE and the companies with which he has professional links, performed consultancy services totalling EUR for the following services: technical assistance in drawing up the consolidated accounts, tax advice, technical assistance in converting the consolidated accounts to the IFRS standards, taking part in audit committees, special assignment concerning field of activity contribution and various other services. In addition, the remuneration received by ERNST & YOUNG S.C.C. in its function as auditor for the business year 2004 amounted to EUR. The result is in an IFRS profit per share of 6.1 EUR based on shares less own shares deducted from the net assets.

17 15 NET PROFIT FROM OPERATIONS (in million EUR) OWN SHARES BUY-BACK AND ANNUAL DIVIDEND (in million EUR) OWN SHARES BUY-BACK DIVIDEND SHARE CAPITAL REIMBURSEMENT PROPOSALS BY THE BOARD TO THE SHAREHOLDERS An Extraordinary General Meeting is scheduled for Friday, 22 April 2005 at 11 a.m. with the agenda comprising split of the stock in the proportion of five new shares for one share before division. The share capital, set at EUR is to then be represented by fourteen million and seventy-five thousand ( ) shares without any designation of nominal value, each representing 1/ th of the share capital. In compliance with the legal requirements, the effective division of the certificates will take place at the end of April The Board proposes to redistribute 14 million EUR to shareholders, equivalent to 5 EUR per current share, in the form of a dividend or repurchase of own shares before the end of June, though after division of the certificates. Since its establishment 10 years ago, EVS has constantly financed its growth itself and paid a regular dividend equivalent to 30% of its current net result. In 2004, the effective payout relating to the year 2003 was 140%. As per 31 December 2004, the consolidated net equity (Belgian GAAP) before any allocation of a dividend amounted to approximately 39 million EUR, including 8 million EUR in share capital, and the total balance sheet (Belgian GAAP) was in excess of 53 million EUR. The 0.1 ratio of debts to equity capital is relatively small. The Board of Directors meeting prior to the General Meeting does not exclude the distribution of a normal dividend but reserves its decision up to that date. company. Subsequently and in accordance with the same legal provision, the Extraordinary General Meeting of 20 May 2003 voted to renew the authorisation to repurchase own shares under specific conditions regarding time and value, in this case for a period of 18 months. Most of the purchases were carried out under a market promotion agreement concluded with the financial broker Delta Lloyd Securities on 1 February The Board of Directors will propose to the General Meeting of 17 May 2005 that these two authorisations be renewed for a period of 3 years in the first case and for 18 months in the latter case. The Board of Directors Liège, 28 April 2005 The group has a policy of repurchasing own shares in order to regularise and support the share price, take advantage of technical weaknesses and improve its liquidity. This also shows that EVS is confident about its future. Within the limitations of Article 620, Par. 1, Clauses 3 and 4, Sub-Clauses 1, 2 of Company Law, the Extraordinary General Meeting of 15 May 2001 authorised the Board of Directors to exchange and/or dispose of the company s own shares on the stock exchange or by any other manner with a view to averting serious and imminent harm to the

18 16 SHAREHOLDING as of 31 December, 2004 Minguet Family L Hoest Family Michel Counson Cytindus S.A. 33.3% 33.3% 33.3% 0.03% 4.8% DTV S.A. 27.4% Situation as it appears from the last official ownership statements received by the company and its own situation as of December 31, 2004: Shareholders Number in % in % diluted of shares (with warrants issued) Linked shares DTV Michel Counson Own shares SUB-TOTAL linked shares ING GROUP BGL INVESTMENT PARTNERS S.A. DEUTSCHE BANK AG Public & miscellaneous Granted warrants Own shares 3.7% 5.2% 3.0% 51.7% 1.5% 2.7% EVS Broadcast Equipment S.A. CYTINDUS S.A ING Group BGL Investment Partners S.A Deutsche Bank AG Public and miscellaneous Granted warrants ( as of 31 December) 1.5 TOTAL DEVELOPPEMENT TECHNOLOGIQUE VIDEO S.A. (DTV) is a holding company, whose purpose is to manage and finance companies in which it holds a stake. It is owned equally by Pierre L HOEST, Laurent MINGUET and Michel COUNSON. CYTINDUS S.A. and is an investment company essentially owned by Michel DELLOYE and founded in 1997 for the purpose of investing in expanding companies, thus actively contributing to their long-term management. BGL INVESTMENT PARNERS (BIP) is an investment company listed on the Luxembourg Stock Market. It specialises in the development financing of strong growth companies located in the large neighbouring region of Luxembourg. DEUTSCHE BANK AG is a large German bank. On 31 December 2004, there were registered shares of which are owned by DTV, by CYTINDUS S.A. and 26 by eight other shareholders. There are bearer shares and physical bearer shares.

19 17 PROFIT ALLOCATION POLICY DIVIDEND OR REIMBURSEMENT PER SHARE (EUR) DIVIDEND OR REIMBURSEMENT % OF NET OPERATING PROFIT FROM OPERATIONS (1) (1) (1) Reimbursement proposal of 14 million EUR to shareholders, i.e. 5 EUR per share, reimbursed as a dividend and/or the buy back of own share. The Board of Directors examines the results of the previous financial year and proposes at its Annual General Meeting to distribute those profits in the best interest of the company and its shareholders. Bearing in mind the legal restrictions on profit distribution, the Board of Directors can propose a dividend policy that will respect the company s investment and acquisition requirements. In the IPO prospectus of October 1998, EVS announced dividends of around 30% of consolidated net profit from operations. The healthy financial structure has permitted EVS to comply with its commitment as illustrated by the chart above. The Extraordinary General Meeting of 22 April 2005 has decided to divide the existing share by five. Dividends are payable at following financial institutions: BANQUE FORTIS S.A. Montagne du Parc, Brussels Belgium ING S.A. Cours Saint-Michel, Brussels Belgium DELTA LLOYD SECURITIES S.A. Kipdorp, Antwerp Belgium

20 18 STOCK MARKET REPORT STOCK MARKET PRICE EVOLUTION STOCK PRICE EVOLUTION COMPARISON SINCE IPO OF 14 OCTOBER 1998 (base 100) EVS NASDAQ BEL20 DJ STOXX TECHNO STOCK MARKET AND LISTING EVS shares (ISIN BE ) are quoted continuously on EURONEXT Brussels. The EVS IPO onto the first Brussels stock market took place in 1998 at a price of 37.2 EUR. Moreover, EVS has been selected to be part of Next150 and BelMid indexes and of the Next Economy quality segment, which includes companies such as MOBISTAR, BARCO or TELINDUS. The company must publish its accounts according to IFRS/IAS standards in 2005 at the latest but EVS is already prepared for this adaptation and is publishing its 2004 results according to the IFRS standards. EVS SHARE AND INDEXES After the euphoric period of 1998 and 1999 which followed the EVS IPO, the valuation of the company has returned to a more reasonable P/E (Price Earning Ratio): it has in fact moved from 39 (31/12/98) to 27.5 (31/12/99), to 10.7 (31/12/01) then to 13.0 during Over the 2004 financial year, the minimum value achieved by the stock price was EUR on 2 January 2004 and the maximum stock value was EUR on 9 December Although it returned to a more reasonable level in 1999, the EVS stock price did not experience the widespread soaring seen by the technology and media companies during 2000, but, in contrast, suffered the market fall in September 2001, even though its fundamentals were continually increasing. Over the period between 14 October 1998 and 25 March 2005, the BEL20 fell by 2%, the Dow Jones Euro Stoxx Technology TM fell by 36% and gained 2% of their value, while EVS increased by 167%. EVS is emerging as a small cap with profitable growth. VELOCITY AND LIQUIDITY PROVISION Around 70% of the company s shares were exchanged in the course of An average of shares were traded daily on Euronext, which represents twice the average of With a free float of 65% at the end of 2004, EVS has a high adjusted velocity of 195% during the first months of 2005, also up on 2003 and (in number of shares) Annual Average Standard Adjusted traded daily velocity (1) velocity (2) volume volume % 63 % % 55 % % 31 % % 44 % % 78% % 128% (3) % 195% (1) Standard velocity represents the annual volume traded on the stock market and expressed as a percentage of the total number of the company s shares ( up to 21 May 2003, up to 15 March 2004 and beyond). (2) Adjusted velocity represents the annual volume traded on the stock market and is expressed as a percentage of the unidentified float (around 35 % up to 2002, 46% in 2003, 55% in 2004 and 65% at the beginning of 2005). (3) During one quarter. The strong growth in the daily liquidity of the share is explained by the combination of the upturn in the financial markets, the important growth of EVS fundamentals and the extra framework acquired by EVS thanks to the success of its products and its active financial communication on international stock markets. The exchanged daily volume of 0.5 million EUR in 2004 reached 1.3 million EUR at the beginning of 2005, with peaks of up to 2.5 to 3.0 million EUR.